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Court of Appeal sets aside a statutory demand in the absence of a creditor confirming there is no genuine dispute about the debt

On 11 August 2014, the Court of Appeal handed down its decision in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262, confirming that a statutory demand is liable to be set aside, pursuant to s 459J(1)(b) of the Corporations Act, if the accompanying affidavit does not state that the deponent believes that there is no genuine dispute about the existence or amount of debt.

WHAT DOES SECTION 459J SAY?

Section 459J(1)(b) of the Corporations Act provides that “the Court may by order set aside the demand if it is satisfied that there is some other reason why the demand should be set aside”.

WHAT HAPPENED IN THIS CASE?

Kisimul Holdings Pty Ltd applied under s 459G of the Corporations Act for orders setting aside two statutory demands served on it by Clear Position Pty Ltd. In each of the affidavits accompanying the statutory demands, the deponent did not state that she believed there to be no genuine dispute about the existence or amount of the debt. One argument advanced by Kisimul was that the absence of this statement constituted “some other reason”, within the meaning of s 459J(1)(b), such that the demand should be set aside.

At first instance, Justice Stevenson concluded that, in this case, the ground of “some other reason” was not made out by the absence of a “no genuine dispute clause” in the affidavit accompanying the statutory demand.

WHAT HAPPENED ON APPEAL?

On appeal, Barrett JA (with Beazley P and Gleeson JA agreeing) ordered that the demand be set aside. The Court found that:

the combined effect of s 459E of the Corporations Act and r 5.2 of the Supreme Court (Corporations) Rules 1999 (NSW) (Rules) is to require the affidavit accompanying a demand to comply with Form 7 in Schedule 1 of the Rule;

clause 5 of Form 7 requires a deponent to state his or her belief that there is no genuine dispute about the existence or amount of the debt; and

the failure to include this statement constituted “some other reason” in s 459J(1)(b), enabling the Court to set aside the demands.

Before dealing with the matter, the Court made some preliminary comments about the nature of the power in s 459J(1)(b). It found that “some other reason” means a reason other than those specified in ss 459H and s 459J(1)(a) of the Corporations Act and that those reasons should not be confined to established categories.

Rather, the Court considered that the section is a remedial provision under which it may deal with cases not within s 459H or s 459J(1)(a) in a way that is just, having regard to the purpose of the legislation. It found that the section applies whenever there is a need to counter some attempted subversion of the intended operation of Part 5.4.

The operation of Part 5.4 is to allow a presumption of insolvency to arise through non-compliance with a demand for payment of a debt, but only if it is uncontroversial that the debt is due and payable. The Court held that a company served with a demand has a right to be assured that the demanding creditor recognises that responsibility and has conscientiously formed a belief that the responsibility has been discharged.

By failing to include a statement about the deponent’s belief as to the absence of a genuine dispute, Clear Position did not establish that the debt was undisputed; a requirement that is central to the proper working of Part 5.4. As such, it was open to the Court to set aside the demands under s 459J(1)(b).

COMMENT

This case serves as a reminder to creditors that the process provided for in Part 5.4 of the Act must be strictly adhered to in order to take advantage of the presumption of insolvency where there has been non-compliance with a demand for payment of a debt.

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